Property tax valuations for oil and gas companies encompass various pieces of equipment, including pumps, tanks and rigs. During past years of heightened production, such equipment carried far more value. Within the current market, that equipment is worth far less because so much of it has been idled. A company’s current property tax assessment, however, may not reflect that reduced equipment value.

Depending upon a company's size, that difference in past and current value could make it worthwhile to mount a property tax appeal, even at this late date.

Determining fair value

Certified property appraisal specialists within the oil and gas industry can assess a company’s property value to help it determine whether or not a current property tax valuation is valid. Companies can also conduct such valuations internally.

Used equipment dealers maintain online listings and current asking prices for oil and gas company equipment. Comparing those prices with an inventory of company equipment enables a company to compile the current market value of its equipment.

The company’s valuation can then be compared to the valuation listed on the property tax assessment it received from the county where the equipment is sited. In some instances, the county’s assessment may be close to a company’s own property valuation. In other instances, the difference in valuations makes a property tax appeal worthwhile.

Appealing a property tax assessment

Texas has a May 31 filing deadline, with appeals made to the county where the property is sited. Depending upon the county, that appeal may be submitted online or via mail. Once that protest has been filed, a hearing date is scheduled with a county appraisal review board (ARB), a group of citizens authorized to resolve tax disputes.

A hearing might not be necessary because some disputes are resolved informally with a county’s appraisal district. However, a company should still file an appeal, in the event a dispute cannot be resolved with the appraisal district.

An accountant, attorney or other counsel may represent the company at an ARB hearing. A company representative should offer supporting documentation to illustrate why a property tax valuation is too high.

The ARB will send a ruling to the company once the hearing is finished. Binding arbitration, a court hearing, or a state hearing are options a company can pursue if it disagrees with the ARB ruling.

Permian Basin companies with property outside Texas also need to be aware of differences in property tax appeal deadlines among energy-producing states. State appeal deadlines fall throughout the calendar year and deadlines in some states are also defined by local tax jurisdictions. It is important that companies be aware of such deadlines when evaluating property tax assessments issued outside Texas.

A deadline for potential substantial savings

Permian Basin oil and gas companies have made substantial capital equipment investments, but equipment that may have been valued at $1 million during years of peak production may only have a market value now of $500,000. If a company’s current property tax assessment does not reflect any declines in value, the company could pay much more property tax than necessary.

At a time when local companies need to reduce costs and seek increased efficiencies, a property tax appeal may be an attractive option, even with the appeal deadline fast approaching.

Mike Goral, J.D., LL.M., is partner-in-charge of state and local tax services and Desmond Ward is a manager in the state and local tax practice at Weaver, the largest independent accounting firm in the Southwest that operates in 10 cities across the United States. Mike can be reached at Mike.Goral@Weaver.com or 972-448-9230 and Desmond can be reached at Desmond.Ward@Weaver.com or 972-448-6977.